If you’ve been looking for fast loan options that don’t require you to have good credit, then you’ve probably heard about title loans. These have high approval rates since they’re dependent on your car, not your credit, and you can get one today. But is a title loan a good idea? One of the key […]
If you’ve been looking for fast loan options that don’t require you to have good credit, then you’ve probably heard about title loans. These have high approval rates since they’re dependent on your car, not your credit, and you can get one today. But is a title loan a good idea?
One of the key factors you’ll need to understand is title loan interest rates. Title loans almost always have short terms, with the most common term length for a title loan being 30 days, which means when the term is up, you’ll need to pay the loan principal and whatever interest you were charged. Here’s everything you need to know about title loan interest rates.
Title Loan Interest Rates Vary by State
There are federal and state regulations for any type of loan, but title loans are one type that are mostly state-regulated. The federal government just requires that you’re 18 or older if you’re going to get a title loan, and otherwise, it gives state governments freedom to set their own rules on the industry.
There are essentially four types of state interest rate laws when it comes to title loan limits:
- No limit
- A percentage of the loan principal
- A combination of a portion of the loan and a percentage of its principal
- A percentage of the loan principal which varies depending on the amount borrowed
The simplest and most common is no limit, which means the state allows lenders to charge as much as they want in interest on a title loan.
Many states set the interest rate limit as a percentage of the loan principal. For example, Alabama sets the limit at 25 percent of the loan principal per month.
An interest rate limit that combines a portion of the loan and a percentage of its principal is uncommon, but a couple states do it. This include Tennessee, where lenders can charge up to one-fifth of the loan principal and an additional 2 percent per month for interest.
Equally uncommon is states that set the maximum interest rate as a percentage of the loan principal which varies depending on how much is borrowed, but again, a couple states work this way. One example is Arizona, where the maximum interest rate for a title loan is as follows:
- 17 percent per month if you borrow $500 or less
- 15 percent per month if you borrow between $501 and $2,500
- 13 percent per month if you borrow between $2,501 and $5,000
- 10 percent per month if you borrow over $5,000
Interest May Not Be All You Pay on Top of Your Loan Principal
In most states, you’ll need to pay your loan principal and any interest the lender has charged you. There are some where you also pay additional fees, though. Texas is one such state.
In Texas, title loan companies also function as credit access businesses, which means that they facilitate loans between consumers and third parties. The title loan interest rate limit in Texas is 10 percent, but because the title loan company is a credit access business, it can charge you fees on top of that 10 percent.
Just like with title loan interest rates, it’s best to check your state’s laws to see how much the lender can legally charge you.
Paying Back Your Title Loan
Every title loan has a set term, and at the end of the term, you pay it off. Unless you can’t. If that’s the case, your alternative is a title loan extension.
For that, you simply pay any interest and fees that you owe, without worrying about your loan principal. You get to take that loan principal into a new term of the same length as your old one, but it will also have its own interest and fee charges.
This is a better option that defaulting on the title loan and losing your car, but it can also leave you trapped in title loan debt. That’s why it’s wise to have a payment plan in mind for your title loan before you get it. If you’ve had to extend a title loan, make sure you find a way to pay it back by the next due date. That could mean working overtime, picking up a side gig or cutting expenses.
If you want to get a title loan or learn more about them, we offer an online car title loan application. You can fill it out with just a bit of basic information about your car and yourself. We can then calculate a car title loan estimate for you so that you know how much you could borrow, and one of our reps will follow up with you to tell you more about title loans. They can also connect you with a title loan company near your location.